U.S. workers could soon produce a young bull

WHEN I am king of the planet, the only school subject will be economics, and the first lesson will be on productivity.

What, you want philosophy and literature? Turn to Dear Abby. This is the business section.

Productivity is the single most important economic indicator, the main mark and auger of all we value in the material world.

It's more significant than the gross domestic product. Bigger than the unemployment rate. More portentous, indeed, than the wrinkles on Mr. Greenspan's forehead.

High productivity is the reason - the only reason - most Americans drive cars and sleep one or two to a bedroom instead of living in mud hovels. Failed productivity growth is why the Soviet Union collapsed.

Productivity improvements are the closest thing in economics to a free lunch. They make all the other indicators charted by the Commerce Department and Labor Department easier to achieve.

Because of increases in productivity, employees can get paid more without working longer. Wages can rise without causing inflation. Government spending can go up without tax increases.

Productivity gains can let the economy grow without adding population. They nurture the sustainable development loved by liberals and the robust GDP growth valued by conservatives - at the same time!

Greenspan said the word "productivity" 30 times this summer in two days of testimony on Capitol Hill, an obsession that underlines the subject's uncertain course and high stakes; there is considerable worry and debate about where productivity is headed next.

First, let's understand the term. Labor productivity - which is what economists usually mean when they use the word - is the value of goods and services produced per worker.

The more productive you are, the more your work is worth. You and a Third World goatherd both put in eight or 10 hours, and he probably sweats more. But your daily diligence generates products worth maybe a couple hundred dollars, while his yields only a few cents of added value. The only difference: productivity. Your place in a technologically advanced society run by good governments and well-managed companies makes the fruits of your toil far more valuable than those of most of your global counterparts.

And because you are such a productive little beaver, your employer is willing to pay you much more, too, than what the guy with the goat gets. That's the beauty. Although productivity advances often involve layoffs as corporations squeeze more work from fewer people, in the long run most people end up winners.

Few dispute that productivity gains generated much or most of the economic progress of the past decade. The recent stock market downdraft and revelations of corporate fraudfest cast doubt on the bona fides of the 1990s boom. But when the smoke clears, an impressive pile of economic progress should still be evident.

One sign of our prosperity is that the highest monthly unemployment rate during the recent slump - 6 percent - isn't far above the lowest rate - 5 percent - during the 1980s expansion. Technology is key to productivity, and by many accounts computers were at the center of the gains in output per worker last decade, enabling warehouses to adjust supply more quickly into line with demand, banks to serve more customers with each employee and so forth.

Average annual productivity gains of 2.1 percent over the past 10 years were still below the 2.8 percent average gains in the 1950s and 1960s, when the interstate highway system and GI Bill-educated workers supercharged national output. But they were far better than the 1.65 percent pace from 1970 to 1990.

Will the gains continue? Some, thinking the computer-induced economic jolt will fade, don't think so. Northwestern University's Robert Gordon, in fact, believes that U.S. productivity increases for the 1990s were overstated. Morgan Stanley's Stephen Roach fears that strong productivity results in recent months won't be sustainable.

Hope they're wrong. By some calculations, a half-percent increase in productivity over the next decade will produce an extra $1 trillion in federal tax revenue, as levies from higher personal incomes and corporate profits flood the IRS tills. The result: Bye bye, big budget deficits and Social Security crisis.

Oh, and one other thing about productivity - it stokes corporate profits as well as worker wages.

For the first half of 2002, U.S. productivity rose at a strapping annual rate of 5 percent. Productivity readings tend to jump around, but if this, or anything remotely like it, continues for a while, the Dow is a buy.